Self-Directed Solo 401(k) FAQs

As you plan for your retirement, you may have heard about Self-Directed IRAs and the flexibility they offer for all sorts of investment choices. But if you’re a self-employed individual or a small business owner, you might be more interested in a Self-Directed Solo 401(k)—and you may find it to be a greater fit. This retirement account option offers unique advantages, and in this blog post, we’ll address some frequently asked questions (FAQs) about Self-Directed Solo 401(k)s to help you understand their benefits and why they might work for you.

Q:  What is a Solo 401(k)?

A Solo 401(k) is a retirement savings plan designed for self-employed individuals or business owners with no employees (other than a spouse). It combines the features of a traditional 401(k) and the flexibility of a Self-Directed IRA. This means you can make tax-deferred or Roth contributions and invest in a wide range of assets, including real estate, private equity, precious metals, and more.

Q: Who is eligible for a Solo 401(k)?

To be eligible for a Self-Directed Solo 401(k), you must be self-employed or a small business owner with no full-time employees other than yourself and your spouse. Part-time or seasonal employees typically do not count for eligibility purposes.

Q: What are the contribution limits for a Solo 401(k)?

The contribution limits for a Solo 401(k) can be quite generous. As per Fidelity, “aggregate contributions can reach up to $66,000 if you are under 50 and $73,500 if you are 50 or older” in 2023.

Q: Can I make both traditional and Roth contributions to my Solo 401(k)?

Yes, you can. Self-Directed Solo 401(k)s potentially offer the flexibility to make both traditional (pre-tax) and Roth (after-tax) contributions. This allows you to diversify your tax exposure and choose the best strategy for your retirement goals.

Q: What are the investment options within a Solo 401(k)?

The investment options within a Solo 401(k) are vast. You can invest in:

• Traditional assets like stocks and bonds.
• Alternative assets such as real estate, private equity, and tax liens.
• Precious metals like gold and silver.
• Promissory notes and more.

This flexibility allows you to tailor your investment portfolio to your specific financial objectives.

Q: Can I take a loan from my Solo 401(k) Retirement Plan?

Yes, Self-Directed Solo 401(k)s often allow you to take a loan from your account. However, there are rules and limits regarding the loan amount and repayment terms that you must adhere to. Consulting with a Solo 401(k) provider like American IRA can help you navigate these details and understand the rules and regulations that should guide your plan of action here.

Q: What are the tax benefits of a Self-Directed Solo 401(k)?

Self-Directed Solo 401(k)s offer tax benefits similar to traditional 401(k)s. Contributions are tax-deductible (for traditional contributions), and earnings within the account grow tax-deferred. Roth contributions provide tax-free withdrawals in retirement, provided certain conditions are met.

Q: How do I set up a Self-Directed Solo 401(k) Retirement Plan?

Setting up a Solo 401(k) involves several steps, including choosing a provider, completing the necessary paperwork, and establishing the plan with a custodian. It’s essential to work with a reputable Solo 401(k) provider like American IRA to ensure compliance with IRS rules and regulations.

A Solo 401(k) is a powerful retirement savings tool that can offer significant benefits, especially for self-employed individuals and small business owners. But it’s not like any other type of account! It helps to do your research.  Interested in learning more about Self-Directed IRAs?  Contact American IRA, LLC at 866-7500-IRA (472) for a free consultation.  Download our free guides or visit us online at www.AmericanIRA.com.